O’Brien update (5) – By His Honour John Platt

HH John Platt updates readers on the O’Brien/Miller pension and money claims fallout: all about tax

Note: individuals have only until 31 January 2017 to file their 2015/6 returns

Introduction

A. This circular attempts to explain the practical tax consequences of both the fee underpayments which almost all of you should by now have received and the pension which you will hopefully receive from April 2017 when the new scheme for part time fee paid judges becomes law. May I start by acknowledging the very considerable assistance which I have received from Jenni Turco of Positive Wealth Creation Ltd in preparing this article. Her expertise in these matters is much greater than mine. She has also supplied the information for the tax tables in Appendix A.

B. I repeat again that the views expressed in this document represent my personal understanding of the tax consequences of what you have and/or will receive It is not intended to offer encouragement or discouragement to any individual. So once again I repeat that any individual who wishes to pursue his or her case further with HMRC should take independent advice. The same applies to deciding whether or not to take a particular course of action in arranging your personal finances. With the arrival of the 2015 pension scheme there are no longer any broad brush solutions for those affected. Taking proper professional advice is a sensible course to follow.

C. If your accountants wish to speak to me on any matter in this circular you are free to pass on my e-mail address to them: jpjudgeretired@gmail.com. Equally if you know of any surviving spouses or children of PTFPJs who have been receiving payments on account of surviving spouse/children’s pensions please feel free to copy this circular and/or my e-mail address to them. The same applies with greater urgency to the surviving spouse/ child of any PTFPJ know to you who has died since 2 December 2012 who has not yet lodged a claim. Although the money claim moratorium has ended the pension claim moratorium is still in place so claims where the death occurred after 2 December 2012 are still in time. There is at least a strong probability that those who have received interim payments will be entitled to significant tax refunds and there are time limits for claiming these. We are all in this together.

Executive summary

1. Individuals whose other earnings/income during their fee paid judicial service have consistently taken them into the top tax bracket are unlikely to benefit from apportionment action over their underpayments.

2. Some groups of individuals e.g. those whose earnings/income during their fee paid judicial service have not taken them into the higher rate tax bracket may well benefit significantly by electing to have these underpayments taxed in the tax year in which they were earned (see paras 20-24 below).

3. The pension scheme for fee paid judicial service will be an unregistered scheme for the purpose of the Finance Act 2004 so pension benefits in respect of service up to 6 April 2015, and thereafter for those entitled to transitional or tapering relief, will not count towards the lifetime limit or the annual allowance for registered schemes.

4. Consequently those who have already obtained HMRC protection for their private pension funds in excess of the lifetime limit will not be in breach of their undertaking to acquire no further pension benefits so long as they remain in the new FPJPS scheme.

5. But the 2015 scheme is a registered scheme so an individual faced with being transferred into the 2015 scheme will have to decide whether to opt out immediately before the date fixed for entry into that scheme in order to preserve his HMRC protection. Failure to do so will incur a tax charge on retirement of 55% on the total value of the pension fund over the lifetime limit.

6. Compensation under Regulation 8(10) PTWR 2000 for the delay in paying PTFPJs the correct daily fee for sitting and training days will be taxable as miscellaneous income and taxed in the tax year of receipt but HMRC now accept that there is no statutory basis for the MoJ deducing tax at source from these payments (see paras 13ff below).

7. Significant extra payments will be due to the surviving spouses/dependent children of deceased PTFPJs including those who have been receiving payments on account (see para 47 below).

8. In terms of making things easy for completing your tax return or applying for a tax refund this has not been the MoJ’s finest hour.

Stage 1 – Defining the terms

8b. As a result of the Miller decision of January 2014 virtually all those who were entitled to a payment in respect of underpaid sitting and training day fees have received payment of what is due to them plus compensation under Regulation 8 (10) of the PTWR 2000. For most judges this has taken the form of one single payment paid direct into their bank account at the time the initial offer was made. This is made up of two elements. The first element is the lump sum made up of the total of underpayments of fees for sitting and training from April 2000 to 31 December 2013 (the underpayment lump sum or ‘ULS’). The second element is the compensation under Regulation 8(10) for the delay in payment calculated using the Preston method (‘the Preston method compensation payment or ‘PMCP’). Confusingly these are usually described on your pay slip as ‘Pay Claim non pension sum 1/04/2015 – 30/04/2015’ and ‘Pay claim interest 01/04/2015 – 30/04/2015’ both of which bear no resemblance to the truth.

9. Where the original offer has not been accepted and the ULS and PMCP have been increased by additional payments then in this circular the ULS and PMCP mean the combination of the original and any further payments. If you happen to have received the offer letter payment in one tax year and the extra payment in the subsequent tax year you have extra work to do but it is always the year in which the payment is made that decides initially which annual return it has to go into (see para 19 below).

10. Although in practise the ULS and PMCP have been paid together as a single sum each element is treated differently for tax purposes. To make matters more complicated there has been a change in the policy of deducting tax from the PMCP and there is a difference in the entitlement to a P60/P45 depending on whether the individual was still serving or had retired at the time of payment. Consequently there are now four separate categories.

A. Judges still receiving fees for fee paid work for the whole tax year in which the ULS/PMCP was received where the PMCP was paid before 31 August 2015.

B. Judges still receiving fees for fee paid work for the whole tax year in which the ULS/PMCP is received where the PMCP was paid after August 2015.

C. Judges no longer receiving fees for fee paid work at the time when the ULS/PMCP was received where the ULS/PMCP was paid before 31 August 2015.

D. Judges no longer receiving fees for fee paid work at the time when the ULS/PMCP was received where the ULS/PMCP was paid after August 2015.

Tax on the ULS

11. HMRC have always advised that the MoJ is obliged to initially to treat the ULS as income of the recipient in the tax year of payment from which tax must be deducted under PAYE. Consequently the amount paid is included along with sitting fees in the total earnings for the tax year of payment shown on the P60. The tax deducted from the ULS is not shown separately but included in the total of tax deducted from the combination of fees earned and the ULS. For those retiring during the tax year after receiving payment of the ULS the same information is included in the P45.

12. However HMRC and the MoJ have always conceded that any individual is entitled to have the total of ULS treated as if the underpayments were taxable in the year in which each underpayment arose. This involves a process which is by no means straightforward and is explained in more detail is at para 38 and Appendix C below.

Tax on the PMCP

13. HMRC initially advised the MoJ that the PMCP was (a) taxable in the hands of the recipient as miscellaneous income and (b) that the MoJ should deduct tax at 40% through the PAYE system from this payment. This was the message that claimants consistently received but (b) has turned out to be seriously incorrect see para 15 below.

14. The correctness of (a) was confirmed by the Tribunal following a remedy hearing in October 2015 in O’Brien v MoJ and for the reasons set out in the judgment seems to be beyond challenge. The correctness of (b) was immediately challenged by claimants as the authority for deducting tax did not appear to fit into any of the categories listed in Chapter 7 of the Income and Corporation Taxes Act 1988 and this compensation was never income from employment within the PAYE Regulations.

15. However from the inception of the JPCT the MoJ followed HMRC guidance and deducted tax through the PAYE system from the PMCP. After a delay of many months HMRC finally conceded in August 2015 that there was indeed no statutory authority for deducting tax via PAYE or indeed in any other way from PMCP payments. Since 1 September 2015 PMCP payments have therefore been made gross. For most individuals this makes no difference to the amount of tax ultimately due so long as the individual receives credit for the tax deducted. Where tax has been deducted HMRC suggest that the gross figure should go in Box 17 of the tax return (2015/6 return) in the section headed ‘Other UK Income’ and the amount of tax deducted should go in Box 19. If only life were so simple!

16. There are two problems with this suggestion. The first problem is that up to August 2015 the MoJ were using the PAYE system to calculate the tax to be deducted from both the ULS and PCMP payments. The PAYE system will work out automatically from an individual’s tax code to a high degree of accuracy the correct amount of tax due for each monthly or weekly gross pay for those who have regular earnings but it is not so happy when dealing with a single one off lump sum.

17. To make matters more complicated it appears that Liberata, which operates the payments system on behalf of the MoJ has not been consistent in its approach. Some ULS/PMCP payments have been worked out on a week 1 or month 1 basis and others simply treated in the same way as taxable earnings using the individual’s tax code. Depending on which month during the tax year the ULS/PMCP was made the amount of tax deducted under PAYE using the individual’s tax code will include part of the individual’s annual allowances so it is not possible simply to assume that tax has been deducted at 40%. Examples that I have seen show levels of deduction varying between 16.5% (this for a top earning QC!) to 43.3%. If you have received a PCMP before 31 August 2015 do not assume that tax has been deducted at 40%. You may well have further tax to pay.

18. The second problem is that since tax has been deducted from the PMCP through the PAYE system the PMCP and tax deducted will form part of the total figures for gross earnings and tax deducted on the P60. But neither the pay slip nor the P60 will show separately the actual amount of tax deducted from the PMCP. The exercise of working out exactly how much tax is attributable to the PMCP is extremely laborious and not necessarily achievable with complete accuracy. A suggested simple and pragmatic solution is at para 23 below.

19. At the moment HMRC take the view that in contrast to the ULS the whole of the PMCP is taxable as miscellaneous income in the tax year in which it is paid. So there is no right to elect for this to be apportioned between the tax years during which the underpayments occurred. In my view this is correct but the contrary position may be arguable. Whether this is a worthwhile exercise is a different question.

Is it worth apportioning the ULS over the relevant tax years?

20. The short answer is that it all depends on the total taxable income of the individual from all sources in each tax year over the relevant period. One thing is pretty certain. Those whose earnings have taken them into the higher rate tax bracket over the whole of their part time fee paid service are extremely unlikely to benefit from apportioning. Individuals are not allowed to cherry pick individual years for apportionment. This is an all or nothing election. As shown in Appendix A over the period since 2000 the top rate of tax has sometimes been higher than it is now so an election could result in the apportioned ULS producing a slice of the ULS which is taxable at 50% instead of 40% or 45%. Taking into account the time and professional fees involved in reopening the tax calculations over a large number of tax years there are many who will conclude that it is simply not worth embarking on this exercise.

21. However there are four groups who may find that the exercise is at least worth considering because apportionment could produce a worthwhile reduction in their overall tax bill and for some a consequential refund. This list is not guaranteed to be complete.

Group A

22. The first group comprises those at the lower end of the income scale whose part time fee paid work is effectively pin money and whose other income and fees for the tax years apart from the year in which the ULS is paid still falls below the tax threshold completely or below the higher rate threshold. It is the combination of the ULS and other taxable income which takes them over the threshold for basic rate or the higher rate threshold in that one tax year in which payment was received.

Example 1

Judge A has been a PTFPJ since April 2005. She receives a gross ULS in the tax year 2014/5 of £8,000. Over the ten tax years 2005/6 to 2014/5 her total fee income has gradually increased from £3,000 to £7,000 a year and her other taxable income from investments has been steady at £500 a year. For the tax year 2014/5 her total taxable income from all sources including the unapportioned ULS is £15,500 which puts her into the basic rate band for income tax for that tax year. The tax on the unapportioned ULS after taking into account her personal allowances is about £1,200. If the ULS is apportioned over the relevant tax years some if not all ULS slices including her other income will fall below the threshold for basic tax in each tax year so significantly less tax will be payable on the ULS.

Example 2

Judge A has been a PTFPJ since April 2005. She receives a gross ULS in the tax year 2014/5 of £24,000. Over the ten tax years 2005/6 to 2014/5 her total fee income has stayed around the £10,000 a year mark and her other taxable income from investments at £12,000 a year. For the tax year 2014/5 her total taxable income from all sources including the unapportioned ULS is £46,000 which puts her into the higher rate band for income tax for that tax year. The higher rate tax on the unapportioned slice of the ULS over £31,865 will be about £1650. If the ULS is apportioned over the relevant tax years all the ULS slices will be liable to tax only at the basic rate of 20%, a saving of about £820.

Group B

23. Group B comprises those at the other end of the scale for whom the combination of the ULS and other taxable income takes them out of the higher rate of 40% and into the top rate of 45% in the tax year of payment of the ULS. So long as the apportioned ULS plus other taxable income in each tax year produces a taxable income below £150,000 there are potential tax savings to be made. An unapportioned ULS of £20,000 taxable at 45% means that tax of £9,000 is payable. An apportioned ULS all taxable at 40% means that tax of £8,000 is payable, a saving of £1,000.

Group C

24. The third group are those for whom the ULS/PMCP payment has taken their total earnings for the tax year of payment over £100,000 causing them to lose all or part of their personal allowances for that tax year. So long as the apportionment exercise does not take earnings in any year from the tax year 2010/11 over the £100,000 threshold the restoration of the personal allowance in the year of payment will save up to £4,240.

Group D

25. The fourth Group is quite different. It comprises the surviving spouses/civil partners of PTFPJs who are entitled to pension benefits following the death of a PTFPJ after 2 December 2012 or before that date if the PRs have made an in time claim for pension benefits. For this group it appears that the ULS forms part of the estate of the deceased judge so it is for the PRs to decide whether ULS should be apportioned. The extra factor here will be whether or not the death occurred early or late in the tax year. Broadly speaking the earlier in the tax year the death occurred the less likely it will be worth apportioning.

26. The apportionment issue for this group arises over the initial payment on account of pension if it covers, as it often does, more than one tax year. For reasons which are certainly not understood by me, Liberata which makes these payments on behalf of the MoJ, has used the tax Code of the deceased PTFPJ to calculate the tax deducted from these payments. Consequently tax has usually been deducted at approximately 40% from each payment on account. Those beneficiaries whose total taxable income is below the higher rate starting point have a significant tax repayment claim to make and successful claims have been made (see further below at paras 44ff and Appendix D).

Completing the tax return – Category A claimants

27. A few of these claimants will have received a P60 for 2014/5 including the ULS/PMCP. For the reasons set out at paras 29 and 30 it may be worth eventually filing an amended return to move the PCMP into the miscellaneous category once the NIC position is clear. For most claimants it will be the P60 for 2015/6 which shows a gross earnings figure which is made up of (a) the gross amount of sitting/training fees paid during the tax year, (b) the gross amount of the ULS and (c) the gross amount of the PMCP. Equally the P60 will have only one figure for tax deducted from the total of (a), (b) and (c). The MoJ will have returned to HMRC a form P14 which simply shows the same two figures for gross earnings and tax deducted. So the first thing to do is to check the P60 to make sure that the gross earnings figure does include all three amounts. The rest of this section assumes that this is so.

28. These are the figures which would normally go into the gross earnings and tax deducted boxes in the income from employment section of the tax return. But according to HMRC the PMCP is miscellaneous income which belongs in boxes 17 and 19. You, gentle reader, may well ask what difference it makes if two figures which should be in boxes 17 and 19 find their way into a different part of the return. After all HMRC will add the figures in the four boxes together to determine the gross taxable income and the tax already deducted.

29. The answer probably lies in the position over National Insurance Contributions. For those under 65 at the time of payment HMRC has determined that the individual is not liable to pay Class 1 NICs on the amount of PMCP whereas he may eventually be liable to pay Class 1 NICs on the ULS. If you have studied your pay slip carefully you will have seen that there appears to have been no deduction from the ULS for Class 1 NICs. The reason for this is probably that until the issue of whether the new pension scheme is to be retrospectively contracted out up to 31st March 2015 is determined it is not possible to say what the correct figure should be for employee’s Class 1 NIC contributions. Equally the level at which Class 1 NICs are charged has not been constant over the whole period. This may explain why the MoJ have decided to put the whole issue of NICs on the back burner until the contracting out issue is resolved. I can think of no other explanation for this omission.

30. There may therefore be some point in making sure that the gross earnings figure in the income from employment section does not include the PMCP so that any eventual liability for Class I contributions is correctly calculated.

31. The problem now is having taken the PCMP out of the income from employment section and inserted it into box 17 how to find a figure for the tax deducted to go into box 19. Certainly none of the documents issued by Liberata which I have seen show separately the actual amount of tax deducted from the PMCP. Had tax been deducted under Chapter 7 of the Income and Corporation Taxes Act 1988 there would have been an obligation on the part of the MoJ to provide a certificate in form R185 showing the amount of tax deducted but HMRC has now conceded that Chapter 7 does not apply.

32. There appear to be two practical solutions which both lead to the same result in terms of working out the total tax due and giving credit for tax already deducted by the employer. The simplest is to enter the total tax deducted from the P60 into the relevant box in the income from employment section and enter NIL in box 19. I suggest that in Box 21 something along these lines should be used ‘This is compensation under Regulation 8(10) PTWR 2000 from which tax has incorrectly been deducted by the employer. The amount deducted has not been separately specified but has been included in the total in the income from employment section so a NIL figure has been entered in Box 19.’ Another pragmatic solution is simply to work out the percentage of the total gross earnings represented by the PMCP and apply the same percentage to the total deduction figure to establish the amount to go into the two tax deducted boxes.

Example:

The P60 shows total gross earnings including ULS/PMCP of £80,000 of which the PMCP is £20,000. Total tax deducted is £32,000. The PCMP is 25% of the total gross so £8,000 of the tax deducted goes into box 19 and £24,000 into the box showing tax deducted from income from employment.

Completing the tax return – Category B claimants

33. In contrast to Category A the position is simple. Check the total gross earnings figure on the P60 to see whether the PMCP has been included. It should only include sitting/training fees and the ULS. If it includes the PMCP deduct the PMCP from the total and enter the adjusted figure for total gross earnings from employment. Enter the total tax deducted figure from the P60 in the box showing tax deducted from income from employment. Enter the PMCP figure in box 17 and NIL in box 19. Offer a brief explanation in box 21.

Completing the tax return – Category C claimants

34. The difficulty here is that the ULS/PMCP has been paid after your retirement and although tax will have been deducted from both lump sums you are no longer entitled to a P60 or a corrected P45. Payments made by the employer after the employee has left the employment are dealt with in HMRC guidance leaflet. As stated in the guidance you are entitled to written confirmation from the MoJ of the tax deducted. A specimen letter in lieu of the revised P45 is at Appendix B. You will need to complete the figures in the specimen letter showing the gross ULS and PMCP and one figure for the tax deducted from your pay slip and then e-mail the JPC team attaching the specimen letter as a word file. They should then provide you with a letter in lieu of a revised P45 on MoJ notepaper.

35. If you received your ULS/PMCP after your retirement but in the same tax year add together the gross earnings figure from the P45 and the gross ULS and enter the total into the gross earnings box in the income from employment section. Enter the gross PMCP into box 17 in the miscellaneous income section. Then follow one of other of the procedures described at para 32 above to enter the total tax deducted either all in the income from employment section or apportioned between the two sections.

36. If you received your ULS/PMCP in the next or later tax year simply add the gross ULS to your other taxable income from employment (if any) but NOT any MoJ payment on account of pension which belong in a different section of the tax return, and enter the total into the gross earnings box in the income from employment section. Enter the total tax deducted in the tax deducted box in the same section Enter the gross PMCP in box 19 and then follow one of other of the procedures described at para 32 above.

Completing the tax return – Category D claimants

37. You do not need a letter in lieu since tax has not been deducted from the PMCP. Simply enter the gross figure for the PMCP in box 17 and NIL in box 19. In box 21 enter ‘This is compensation paid gross under Regulation 8(10) PTWR 2000’. You will have tax to pay on the amount received.

Apportioning the ULS

38. If you have reached the point of seriously considering whether to elect for apportionment you will find step by step instructions, a draft letter you will need from the MoJ, and a worked example at Appendix C. There may be other ways of doing this but all I can say is that the principle of working out the amount of tax deducted to be applied to each separate year in which the payment should have been made has been accepted by the MoJ as valid in producing the letter in lieu of a P60 and by HMRC in working out the tax refund due to a widow over a three tax year period. HMRC records of each individual’s P60 do go back to the 2001/2 tax year but how far back their overall individual assessment records go is uncertain. It may be as little as six years.

39. The problem can be simply stated. In order to work out whether you are entitled to a refund you need information not only of your underpayments in each relevant tax year but also of your other taxable earnings in each tax year in order to determine whether you are at or over a particular tax threshold. That information may stretch over fourteen tax years and may simply be no longer available. If individual records are not available I have simply no idea how a solution can be arrived at other than by guesswork. Any suggestions for a solution will be gratefully received.

40. Surviving adult’s and children’s pension claims are covered by the terms of the pensions moratorium which is still running so if the PTFPJ died after 2 December 2012 or died before that date and his PRs made an in time claim for pension benefits, any surviving adult or child who makes a claim will be entitled in his or her own right to a pension under the new scheme. While the regulations are still under discussion the MoJ has instituted a system of interim payments on account.

41. You are entitled to a surviving adult’s pension from the date of death of the PTFPJ and you may have received your first interim payment on account of pension in the same tax year as the death of the judge. This will cover the amount due to the end of the tax year with tax deducted using the tax code of the deceased judge and indeed the payslip will show the payee as the deceased judge. Not surprisingly there will be no P60 at the end of the tax year. However since there was a delay in introducing the payment on account procedure many will have received an initial payment which covered more than one tax year (see para 46 below).

42. The same applies to any children’s pension. If you are lucky there will be two payslips one for the survivor’s payment on account and one for the children’s pension but the two figures may be lumped together into a single payslip and a single payment to the survivor. Again the name of the deceased judge will probably appear as the payee.

43. You will have received further interim payments along the same lines in April of each subsequent year up to and including April 2016 but again without any P60. All being well you should start receiving monthly payments from April 2017 which will be handled by Punter Southall, will have the name of the person entitled as the payee, and the figures will be worked out under PAYE using the actual tax code of the payee.

44. These payments on account are the taxable income of the person entitled either surviving adult or child. Each payment has to be included in the tax return of the individual as pension income, both the gross figure and the tax deducted being entered in the appropriate boxes in the income from pensions section. MoJ have followed HMRC advice in deducting tax under PAYE from these payments. Whether using the PAYE Code of the deceased PTFPJ is actually in accordance with the PAYE regulations is highly debateable but this is what has happened. But the result is that since the children’s pension is the taxable income of the child, for any children’s pension a very significant and possibly total tax refund will be due. Surviving adults whose total taxable income including the payment on account does not take them into the higher rate band will also be due a significant refund.

45. Since there is no P60 addressed to the person entitled it is not surprising that HMRC will not accept a payslip which shows a deceased individual as the payee as evidence that this is the taxable income of the surviving adult or child and as evidence of the amount of tax deducted. What is needed and again what the MoJ are obliged to provide for each beneficiary is a letter in lieu of a P60 confirming the amount of the gross payment and the tax deducted.

46. Where the surviving adult’s initial payment on account covers more than one tax year the initial payment has to be apportioned so that separate figures are shown for each tax year. This is not such a difficult exercise since the payments on account have remained constant and do not reflect any annual increases due on account of inflation. A worked example is at Appendix D1. At D2 is a specimen letter redacted from an actual letter in lieu covering an apportionment of the initial payment over three tax years which was successfully used by the recipient to claim a refund of the overpaid tax. The gross figure for payments on account and tax deducted should be inserted in the pension income section of the tax return for each year.

47. It is important to bear in mind that the annual payments in lieu to the surviving adults and children of those who have died in service do not include

(a) the service enhancement due under the death in service provisions of those who have died in service under age 65;

(b) the annual inflation uprating; and

(c) anything on account of the bereavement award.

The death in service lump sum is also less than the full sum due under the new Regulations because it does not include any allowance for the service enhancement due to those who die under age 65. In addition the figure of 3% deducted from the lump sum for surviving spouse/children’s pension contributions is greater that the figure of 1.8% which has now been announced. HMRC have advised the MoJ that they must deduct tax at 45% from the death in service lump sum and a bereavement award equal to the tax deducted will be paid which takes care of (c) above. This still leaves a significant recalculation exercise to be carried out once the Regulations have been approved by Parliament.

49. Hopefully the exercise of recalculating the correct figure for surviving adult’s and children’s pensions in this category will be completed before April 2017. At that stage there will be a back payment covering the amount of pension underpaid since the date of death, a further payment covering the increases due under the Pensions Increases Act 1971, then a further payment to cover the balance of the death in service lump sum and a bereavement award plus a further PMCP to compensate for the delay in payment. All these adjusting payments may be worth apportioning over the tax years in which they should have been paid.

50. The fact that all these further payments will come in the one tax year 2017/8 may well take the recipient into a higher tax bracket resulting in a higher tax charge. There seems no reason why the same logic should not apply to these payments. The underpayment of pension arising from the service enhancement and the 1971 Act increases can be apportioned on election over the tax years from death. Any PMCP attributable to these elements will be taxable in the year of payment and tax will be deducted at source. The bereavement award is tax free in the hands of the recipient and does not need to be declared. The underpayment of the death in service lump sum and any PMCP is income of the estate and taxable as such.

Pensions and PMCP payments

51. In contrast to PMCP payments derived from the ULS HMRC has advised the MoJ that PMCP payments derived from the delay in payment of the pension form part of the general body of pension benefits and are taxable under PAYE but not subject to NICs. Any PMCP will be taxable pension income of the beneficiary in the year of payment so should be included in the figure for gross pension in the tax return for that year.

A look into the future – Personal Pensions ultimately payable

52. From April 2017 matters should return to normality. On retirement a PTFPJ will be entitled to a pension for life and a lump sum of 2.25 x the pension. Since the new scheme is unregistered the lump sum will be taxable at 45% and a service award equal to the tax deducted will be payable making the lump sum effectively tax free. The pension will be payable monthly taxed under PAYE with annual inflation increases from April each year depending on the annual increase in the CPI to the previous 30th September. The scheme will be administered by Punter Southall on behalf of the MoJ. Each individual will receive an annual P60 issued by Punter Southall showing the gross pension and tax deducted for completion of the tax return. Completing all the necessary records in time for an April 2017 start will be a daunting task. We live in hope!

His Honour John Platt is a retired Circuit Judge who worked on the drafting of both the Judicial Pensions and Retirement Act 1993 and the various accompanying Regulations and is the author of a handbook Judicial Pensions - A Guide to the 1993 Act.

Appendix A - Tax Tables Income from Employment

Year

Personal Allowance £

Rates

Taxable income £

2000/1

4,385

10%

0-1,520

22%

1,521-29,400

40%

over 29,400

2001/2

4,535

10%

0-1,880

22%

1,881-29,400

40%

over 29,400

2002/3

4,615

10%

0-1,920

22%

1,921-29,900

40%

over 29,900

2003/4

4,615

10%

0-1,960

22%

1,961-30,500

40%

over 30,500

2004/5

4,745

10%

0-2,020

22%

2,021-31,400

40%

over 31,400

2005/6

4,895

10%

0-2,090

22%

2,091-32,400

40%

over 32,400

2006/7

5,035

10%

0-2,150

22%

2,151-33,300

40%

over 33,300

2007/8

5,225

10%

0-2,230

22%

2,231-34,600

40%

over 34,600

2008/9

6,035

20%

0-34,800

40%

0-37,400

2009/10

6,475

20%

over 34,800

40%

over 37,400

2010/11

6,475

20%

0-37,400

40%

37,401-150,000

50%

over 150,000

2011/12

7,475

20%

0-35,000

40%

35,001-150,000

50%

over 150,000

2012/13

8,105

20%

0-34,370

40%

34,371- 150,000

50%

over 150,000

2013/14

9,440

20%

0-32,010

40%

32,011-150,000

45%

over 150,000

2014/15

10,000

20%

0-31,865

40%

31,866-150,000

45%

over 150,000

2015/16

10,600

20%

0-31,785

40%

31,786-150,000

45%

over 150,000

2016/17

10,600

20%

0-32,000

40%

32,001-150,000

45%

over 150,000

Appendix B Draft letter in lieu of P45 (see para 34)

Dear [PTFPJ]

Our records confirm that after your retirement from part time judicial office you received a lump sum in respect of underpayment of fees due to you during your service from which the MoJ has deducted tax under PAYE. You also received compensation under Regulation 8(10) of the Part Time Workers (Prevention of less favourable treatment) Regulations 2000 for the delay in payment of money due to you. HMRC consider that this payment is taxable as miscellaneous income and at the time the payment was made to you the MoJ followed HMRC guidance in deducting tax from that payment under PAYE.

Since both these payments were made after your retirement neither were included in your P45. In accordance with HMRC guidance at https://www.gov.uk/employee-leaving this letter is to confirm the gross payments to you and the tax deducted as follows:

Tax year of payment(s)

[enter year or years in which payment was received. If payments fell into different tax years the figures must be separated into the tax year of payment]

Assume that the ULS was paid in the 2015/16 tax year before September 2015

Step 1. Determine the actual rate of tax applied to the ULS.

Example: ULS £14,000 PMCP £7,000 = £21,000. One figure in the pay slip for tax deducted under PAYE £7,000 so the overall rate is 33%.

Tax on ULS is reasonably assumed to be at the same rate as the PMCP so tax on the ULS is 33% x £14,000 = £4,620.

N.B. This under-deduction through PAYE will have to be balanced by a higher proportion of tax on other taxable income at the 40% rate in this tax year and may affect your decision after Step 4.

Step 2. Determine the total taxable earnings from employment/self-employment + ULS and PMCP for the year of payment. Check to see whether adding in the ULS to the total of earnings + PMCP takes the total over £100,000 From the tax year 2010/11 onward for each £2 of taxable income over £100,000 £1 of the personal allowance is lost.

Example: for tax year 2015/6 taxable earnings are sitting fees £25,000 + self-employment taxable profits £64,600 + ULS £14,000 + PMCP £7,000. Total taxable income = £110,600 so half of the personal allowance for this tax year is lost. Without the ULS table earnings are below the £100,000 threshold.

Step 3. Extract from the Excel spread sheet the underpayment for each tax year for both sitting fees and training day fees back to the start of fee paid service or 2000/01. Bear in mind that these will vary significantly depending on the number training days as opposed to sitting days in each year. Ignore earlier years.

Step 4. Check to see whether without adding the amount of the ULS in the tax years 2010/11 2011/2, and 2012/3 there is a total taxable income exceeding £150,000 in the tax years (the personal allowances will already have been lost). If so the underpayment for each year will now be taxable at 50%. Having suffered tax at only 33% tax of a further 17% will now be due which will have to be set against any savings from other adjustments e.g. by restoring the personal allowance. If adding the ULS takes the total past the £150,000 mark the excess will now be taxable at 50%

Step 5. Having decided to proceed you now need to determine the top rate of tax in each tax year of apportionment. So long as total taxable earnings plus the apportioned underpayment fall within the higher rate bracket each year apportionment will be tax neutral. If tax has been deducted at less than 40% there will be tax to pay but it will be at the same rate as in the tax year of payment. On the other hand if for some reason total taxable earnings plus the apportioned underpayment are below the starting point for higher rate in any tax year then a refund of 33% - 20% = 13% will be due for that year.

Step 6. You now need to apportion pro rata the amount of tax to each tax year.

Example: The gross ULS covers 5 tax years and amounts to £7,656 and tax deducted is stated on the pay slip as £2,833 which is a rate of 37%.

From the spreadsheet the gross ULS in each year breaks down as follows:

Year 1

£2783

tax @ 37% = £1,029.71

rounded to £1,030

Year 2

£996

tax @ 37% = £368.52

rounded to £369

Year 3

£874

tax @ 37% = £323.38

rounded to £323

Year 4

£1254

tax @ 37% = £463.98

rounded to £464

Year 5

£1749

tax @ 37% = £647.13

rounded to £647

TOTALS

£7,656

£2,833

Step 7 You now need a letter in lieu of a P50 from the MoJ confirming the tax deduction for each relevant tax year. Here is a suggested draft:

Dear [PTFPJ]

In [insert month and year of payment] the Ministry paid you a lump sum of £[insert amount] which represents the underpayment of sitting fees and training day fees due to you in accordance with the judgment of the Employment Tribunal in Miller v MoJ. This sum covers the period from April 2000/the start of your judicial service [delete as appropriate] to 31st December 2013. The MoJ has deducted tax under PAYE from this lump sum as if it were all income in the year of payment. In accordance with HMRC guidance you are entitled to elect for these underpayments to be taxed in the year in which they should have been paid. This letter in lieu of a revised P60 for each year is to confirm the gross payments to you and the tax deducted as follows:

The gross underpayment covers the period from [insert tax years up to 2013/4] and amounts to [e.g. insert your own figures] £7,656 and tax deducted under PAYE was £2,833 which is a rate of 37%.

Tax year

Gross

Tax deducted

Year 1

£2783

tax @ 37% = £1,029.71

rounded to £1,030

Year 2

£996

tax @ 37% = £368.52

rounded to £369

Year 3

£874

tax @ 37% = £323.38

rounded to £323

Year 4

£1254

tax @ 37% = £463.98

rounded to £464

Year 5

£1749

tax @ 37% = £647.13

rounded to £647

TOTALS

£7,656

£2,833

Yours etc.

Worked example

Judge A was a barrister and Recorder from 1 May 2008 to 31 March 2013 before retiring from judicial office to start salaried employment. His accounts have been prepared on a cash basis. He has made an in time money claim for sitting and training fees underpaid.

His total ULS received in September 2015 was £7,656 and tax deducted is stated on the pay slip as £2,832. The formula X% x £7,656 = £2, 832 gives you a tax deduction rate of 37%

(Remember that if he had been paid in august 2015 you would first have to apportion the one figure for tax on the pay slip between ULS and PMCP)

His total taxable earnings in each year with no other taxable income are:

*for much of 2010/11 he was engaged in a long trial for which he was not paid until the following tax year.

In the tax year of payment 2015/6 his total taxable income is salary £95,000 + ULS £7,656 + PMPC £1,344 = £104,000.

1. Without apportionment he will lose £2,000 of personal allowance (1/2 of £104,000 - £100,000) for the tax year 2015/6 so £2,000 of his income will be taxed at 40% = £800 extra tax.

2. But apportionment does put the apportioned slice for 2011/12 into the 50% bracket so tax is payable at 50% on £1254 instead of 40% so the extra tax payable is £125.

3. Apportionment does not affect the loss of personal allowances for the three tax years 2010/11 – 2012/13

4. Apportionment puts the 2010/11 slice into the basic rate band to be taxed at 20% instead of being taxed at 40% so the saving is 20% x £874 = £175.

5. Apportionment is tax neutral for 2008/9 and 2009/10 and 2012/3

Reconciliation

Tax saved 2015/6 =

£800

Tax saved for 2010/11 =

£175

Subtotal

£975

Deduct Extra tax for 2011/2 =

£125

Total saving

£850

Note: You may prefer the work this example using overall average rates of tax instead of marginal rates which is perfectly valid but does not affect the principles stated.

Appendix D1 – Worked example of a payment on account of widow’s pension.

The details of this example and the redacted letter at D2 are taken from a rea life example and reproduced here by kind permission of the individual concerned.

Recorder A served from April 2000 until his death in service in February 2013. Under the new scheme his widow is entitled to a pension for life equal to half the amount he would have received if he has retired on health grounds on the day of his death. In operating the payment on account scheme the MoJ are ignoring any entitlement to a service enhancement for those who die in service under age 65 and any entitlement to annual increases.

The first payment on account covers the period from the date of death to the end of the tax year in which it is paid. Thereafter one payment is made in April of each subsequent year up to April 2016 and monthly payments at the correct rate should start from April 2017.

Had he retired on health grounds at the date of death Recorder A would have been entitled to a pension of £28,075. His basic widow’s pension is half that sum = £14,038.

Her first payment on account covers the period from the date of death in February 2013 to 31 March 2016 and amounts to £29,421 gross with tax deducted under PAYE of £12,356 a deduction rate of 42%.

This payment on account needs to be apportioned over the tax years 2013/4, 2014/5 and 2015/6.

We know the gross figure for a full year is £14,038 so those are the correct amounts for 2014/5 and 2015/6 and the balance of £1345 is the figure for the part year February to 31 March 2013.

Even with the pension payments Widow A’s total taxable income in each of the three tax relevant tax years is below the higher rate threshold.

The actual apportionment over the three tax years is:

Tax year 2013/4

Gross £1,345

Tax deducted £566

Tax year 2014/5

Gross £14,038

Tax deducted £5,895

Tax year 2015/6

Gross £14,038

Tax deducted £5,895

TOTAL

Gross £29,420

Tax deducted £12,356

The tax due on £29,420 @ 20% is £5,884 so Widow A is due a tax refund of

I am writing to confirm that you are entitled to a widow’s pension following the death in service of your late husband Recorder H.

The Ministry of Justice are in the process of setting up the necessary pension scheme and this is expected to receive parliamentary approval to commence at the beginning of April 2016. This will cover all Mr H’s service as a Recorder from [commencement] to the date of his death on [insert date of death] from which your entitlement to a widow’s pension is derived. Some details of the new scheme which would affect the amounts of the death in service lump sum and your widow’s pension have not yet been finalised. In the meantime on 22nd May 2015 [inset date of payment] we have made you as his widow an ex gratia payment of £ 29,420.62 [insert actual amount] on account of our liability to you. This covers the period from the date of Mr H’s death to 31st March 2016 [insert actual tax year end in which payment was made]. In accordance with instructions from HMRC tax amounting to £12,355.05 has been deducted under PAYE to leave a net payment of £17,065.57. This letter is a certificate in lieu of Income tax Form P60 in accordance with HMRC instructions.

The breakdown of the tax deductions are as follows

Payment due to Mrs Jxxx Hxxxx on account of widow’s pension [insert actual tax years and figures]

O’Brien update (5) – By His Honour John Platt

Note: individuals have only until 31 January 2017 to file their 2015/6 returns

Introduction

A. This circular attempts to explain the practical tax consequences of both the fee underpayments which almost all of you should by now have received and the pension which you will hopefully receive from April 2017 when the new scheme for part time fee paid judges becomes law. May I start by acknowledging the very considerable assistance which I have received from Jenni Turco of Positive Wealth Creation Ltd in preparing this article. Her expertise in these matters is much greater than mine. She has also supplied the information for the tax tables in Appendix A.

B. I repeat again that the views expressed in this document represent my personal understanding of the tax consequences of what you have and/or will receive It is not intended to offer encouragement or discouragement to any individual. So once again I repeat that any individual who wishes to pursue his or her case further with HMRC should take independent advice. The same applies to deciding whether or not to take a particular course of action in arranging your personal finances. With the arrival of the 2015 pension scheme there are no longer any broad brush solutions for those affected. Taking proper professional advice is a sensible course to follow.

C. If your accountants wish to speak to me on any matter in this circular you are free to pass on my e-mail address to them: jpjudgeretired@gmail.com. Equally if you know of any surviving spouses or children of PTFPJs who have been receiving payments on account of surviving spouse/children’s pensions please feel free to copy this circular and/or my e-mail address to them. The same applies with greater urgency to the surviving spouse/ child of any PTFPJ know to you who has died since 2 December 2012 who has not yet lodged a claim. Although the money claim moratorium has ended the pension claim moratorium is still in place so claims where the death occurred after 2 December 2012 are still in time. There is at least a strong probability that those who have received interim payments will be entitled to significant tax refunds and there are time limits for claiming these. We are all in this together.

Executive summary

1. Individuals whose other earnings/income during their fee paid judicial service have consistently taken them into the top tax bracket are unlikely to benefit from apportionment action over their underpayments.

2. Some groups of individuals e.g. those whose earnings/income during their fee paid judicial service have not taken them into the higher rate tax bracket may well benefit significantly by electing to have these underpayments taxed in the tax year in which they were earned (see paras 20-24 below).

3. The pension scheme for fee paid judicial service will be an unregistered scheme for the purpose of the Finance Act 2004 so pension benefits in respect of service up to 6 April 2015, and thereafter for those entitled to transitional or tapering relief, will not count towards the lifetime limit or the annual allowance for registered schemes.

4. Consequently those who have already obtained HMRC protection for their private pension funds in excess of the lifetime limit will not be in breach of their undertaking to acquire no further pension benefits so long as they remain in the new FPJPS scheme.

5. But the 2015 scheme is a registered scheme so an individual faced with being transferred into the 2015 scheme will have to decide whether to opt out immediately before the date fixed for entry into that scheme in order to preserve his HMRC protection. Failure to do so will incur a tax charge on retirement of 55% on the total value of the pension fund over the lifetime limit.

6. Compensation under Regulation 8(10) PTWR 2000 for the delay in paying PTFPJs the correct daily fee for sitting and training days will be taxable as miscellaneous income and taxed in the tax year of receipt but HMRC now accept that there is no statutory basis for the MoJ deducing tax at source from these payments (see paras 13ff below).

7. Significant extra payments will be due to the surviving spouses/dependent children of deceased PTFPJs including those who have been receiving payments on account (see para 47 below).

8. In terms of making things easy for completing your tax return or applying for a tax refund this has not been the MoJ’s finest hour.

Stage 1 – Defining the terms

8b. As a result of the Miller decision of January 2014 virtually all those who were entitled to a payment in respect of underpaid sitting and training day fees have received payment of what is due to them plus compensation under Regulation 8 (10) of the PTWR 2000. For most judges this has taken the form of one single payment paid direct into their bank account at the time the initial offer was made. This is made up of two elements. The first element is the lump sum made up of the total of underpayments of fees for sitting and training from April 2000 to 31 December 2013 (the underpayment lump sum or ‘ULS’). The second element is the compensation under Regulation 8(10) for the delay in payment calculated using the Preston method (‘the Preston method compensation payment or ‘PMCP’). Confusingly these are usually described on your pay slip as ‘Pay Claim non pension sum 1/04/2015 – 30/04/2015’ and ‘Pay claim interest 01/04/2015 – 30/04/2015’ both of which bear no resemblance to the truth.

9. Where the original offer has not been accepted and the ULS and PMCP have been increased by additional payments then in this circular the ULS and PMCP mean the combination of the original and any further payments. If you happen to have received the offer letter payment in one tax year and the extra payment in the subsequent tax year you have extra work to do but it is always the year in which the payment is made that decides initially which annual return it has to go into (see para 19 below).

10. Although in practise the ULS and PMCP have been paid together as a single sum each element is treated differently for tax purposes. To make matters more complicated there has been a change in the policy of deducting tax from the PMCP and there is a difference in the entitlement to a P60/P45 depending on whether the individual was still serving or had retired at the time of payment. Consequently there are now four separate categories.

A. Judges still receiving fees for fee paid work for the whole tax year in which the ULS/PMCP was received where the PMCP was paid before 31 August 2015.

B. Judges still receiving fees for fee paid work for the whole tax year in which the ULS/PMCP is received where the PMCP was paid after August 2015.

C. Judges no longer receiving fees for fee paid work at the time when the ULS/PMCP was received where the ULS/PMCP was paid before 31 August 2015.

D. Judges no longer receiving fees for fee paid work at the time when the ULS/PMCP was received where the ULS/PMCP was paid after August 2015.

Tax on the ULS

11. HMRC have always advised that the MoJ is obliged to initially to treat the ULS as income of the recipient in the tax year of payment from which tax must be deducted under PAYE. Consequently the amount paid is included along with sitting fees in the total earnings for the tax year of payment shown on the P60. The tax deducted from the ULS is not shown separately but included in the total of tax deducted from the combination of fees earned and the ULS. For those retiring during the tax year after receiving payment of the ULS the same information is included in the P45.

12. However HMRC and the MoJ have always conceded that any individual is entitled to have the total of ULS treated as if the underpayments were taxable in the year in which each underpayment arose. This involves a process which is by no means straightforward and is explained in more detail is at para 38 and Appendix C below.

Tax on the PMCP

13. HMRC initially advised the MoJ that the PMCP was (a) taxable in the hands of the recipient as miscellaneous income and (b) that the MoJ should deduct tax at 40% through the PAYE system from this payment. This was the message that claimants consistently received but (b) has turned out to be seriously incorrect see para 15 below.

14. The correctness of (a) was confirmed by the Tribunal following a remedy hearing in October 2015 in O’Brien v MoJ and for the reasons set out in the judgment seems to be beyond challenge. The correctness of (b) was immediately challenged by claimants as the authority for deducting tax did not appear to fit into any of the categories listed in Chapter 7 of the Income and Corporation Taxes Act 1988 and this compensation was never income from employment within the PAYE Regulations.

15. However from the inception of the JPCT the MoJ followed HMRC guidance and deducted tax through the PAYE system from the PMCP. After a delay of many months HMRC finally conceded in August 2015 that there was indeed no statutory authority for deducting tax via PAYE or indeed in any other way from PMCP payments. Since 1 September 2015 PMCP payments have therefore been made gross. For most individuals this makes no difference to the amount of tax ultimately due so long as the individual receives credit for the tax deducted. Where tax has been deducted HMRC suggest that the gross figure should go in Box 17 of the tax return (2015/6 return) in the section headed ‘Other UK Income’ and the amount of tax deducted should go in Box 19. If only life were so simple!

16. There are two problems with this suggestion. The first problem is that up to August 2015 the MoJ were using the PAYE system to calculate the tax to be deducted from both the ULS and PCMP payments. The PAYE system will work out automatically from an individual’s tax code to a high degree of accuracy the correct amount of tax due for each monthly or weekly gross pay for those who have regular earnings but it is not so happy when dealing with a single one off lump sum.

17. To make matters more complicated it appears that Liberata, which operates the payments system on behalf of the MoJ has not been consistent in its approach. Some ULS/PMCP payments have been worked out on a week 1 or month 1 basis and others simply treated in the same way as taxable earnings using the individual’s tax code. Depending on which month during the tax year the ULS/PMCP was made the amount of tax deducted under PAYE using the individual’s tax code will include part of the individual’s annual allowances so it is not possible simply to assume that tax has been deducted at 40%. Examples that I have seen show levels of deduction varying between 16.5% (this for a top earning QC!) to 43.3%. If you have received a PCMP before 31 August 2015 do not assume that tax has been deducted at 40%. You may well have further tax to pay.

18. The second problem is that since tax has been deducted from the PMCP through the PAYE system the PMCP and tax deducted will form part of the total figures for gross earnings and tax deducted on the P60. But neither the pay slip nor the P60 will show separately the actual amount of tax deducted from the PMCP. The exercise of working out exactly how much tax is attributable to the PMCP is extremely laborious and not necessarily achievable with complete accuracy. A suggested simple and pragmatic solution is at para 23 below.

19. At the moment HMRC take the view that in contrast to the ULS the whole of the PMCP is taxable as miscellaneous income in the tax year in which it is paid. So there is no right to elect for this to be apportioned between the tax years during which the underpayments occurred. In my view this is correct but the contrary position may be arguable. Whether this is a worthwhile exercise is a different question.

Is it worth apportioning the ULS over the relevant tax years?

20. The short answer is that it all depends on the total taxable income of the individual from all sources in each tax year over the relevant period. One thing is pretty certain. Those whose earnings have taken them into the higher rate tax bracket over the whole of their part time fee paid service are extremely unlikely to benefit from apportioning. Individuals are not allowed to cherry pick individual years for apportionment. This is an all or nothing election. As shown in Appendix A over the period since 2000 the top rate of tax has sometimes been higher than it is now so an election could result in the apportioned ULS producing a slice of the ULS which is taxable at 50% instead of 40% or 45%. Taking into account the time and professional fees involved in reopening the tax calculations over a large number of tax years there are many who will conclude that it is simply not worth embarking on this exercise.

21. However there are four groups who may find that the exercise is at least worth considering because apportionment could produce a worthwhile reduction in their overall tax bill and for some a consequential refund. This list is not guaranteed to be complete.

Group A

22. The first group comprises those at the lower end of the income scale whose part time fee paid work is effectively pin money and whose other income and fees for the tax years apart from the year in which the ULS is paid still falls below the tax threshold completely or below the higher rate threshold. It is the combination of the ULS and other taxable income which takes them over the threshold for basic rate or the higher rate threshold in that one tax year in which payment was received.

Example 1

Judge A has been a PTFPJ since April 2005. She receives a gross ULS in the tax year 2014/5 of £8,000. Over the ten tax years 2005/6 to 2014/5 her total fee income has gradually increased from £3,000 to £7,000 a year and her other taxable income from investments has been steady at £500 a year. For the tax year 2014/5 her total taxable income from all sources including the unapportioned ULS is £15,500 which puts her into the basic rate band for income tax for that tax year. The tax on the unapportioned ULS after taking into account her personal allowances is about £1,200. If the ULS is apportioned over the relevant tax years some if not all ULS slices including her other income will fall below the threshold for basic tax in each tax year so significantly less tax will be payable on the ULS.

Example 2

Judge A has been a PTFPJ since April 2005. She receives a gross ULS in the tax year 2014/5 of £24,000. Over the ten tax years 2005/6 to 2014/5 her total fee income has stayed around the £10,000 a year mark and her other taxable income from investments at £12,000 a year. For the tax year 2014/5 her total taxable income from all sources including the unapportioned ULS is £46,000 which puts her into the higher rate band for income tax for that tax year. The higher rate tax on the unapportioned slice of the ULS over £31,865 will be about £1650. If the ULS is apportioned over the relevant tax years all the ULS slices will be liable to tax only at the basic rate of 20%, a saving of about £820.

Group B

23. Group B comprises those at the other end of the scale for whom the combination of the ULS and other taxable income takes them out of the higher rate of 40% and into the top rate of 45% in the tax year of payment of the ULS. So long as the apportioned ULS plus other taxable income in each tax year produces a taxable income below £150,000 there are potential tax savings to be made. An unapportioned ULS of £20,000 taxable at 45% means that tax of £9,000 is payable. An apportioned ULS all taxable at 40% means that tax of £8,000 is payable, a saving of £1,000.

Group C

24. The third group are those for whom the ULS/PMCP payment has taken their total earnings for the tax year of payment over £100,000 causing them to lose all or part of their personal allowances for that tax year. So long as the apportionment exercise does not take earnings in any year from the tax year 2010/11 over the £100,000 threshold the restoration of the personal allowance in the year of payment will save up to £4,240.

Group D

25. The fourth Group is quite different. It comprises the surviving spouses/civil partners of PTFPJs who are entitled to pension benefits following the death of a PTFPJ after 2 December 2012 or before that date if the PRs have made an in time claim for pension benefits. For this group it appears that the ULS forms part of the estate of the deceased judge so it is for the PRs to decide whether ULS should be apportioned. The extra factor here will be whether or not the death occurred early or late in the tax year. Broadly speaking the earlier in the tax year the death occurred the less likely it will be worth apportioning.

26. The apportionment issue for this group arises over the initial payment on account of pension if it covers, as it often does, more than one tax year. For reasons which are certainly not understood by me, Liberata which makes these payments on behalf of the MoJ, has used the tax Code of the deceased PTFPJ to calculate the tax deducted from these payments. Consequently tax has usually been deducted at approximately 40% from each payment on account. Those beneficiaries whose total taxable income is below the higher rate starting point have a significant tax repayment claim to make and successful claims have been made (see further below at paras 44ff and Appendix D).

Completing the tax return – Category A claimants

27. A few of these claimants will have received a P60 for 2014/5 including the ULS/PMCP. For the reasons set out at paras 29 and 30 it may be worth eventually filing an amended return to move the PCMP into the miscellaneous category once the NIC position is clear. For most claimants it will be the P60 for 2015/6 which shows a gross earnings figure which is made up of (a) the gross amount of sitting/training fees paid during the tax year, (b) the gross amount of the ULS and (c) the gross amount of the PMCP. Equally the P60 will have only one figure for tax deducted from the total of (a), (b) and (c). The MoJ will have returned to HMRC a form P14 which simply shows the same two figures for gross earnings and tax deducted. So the first thing to do is to check the P60 to make sure that the gross earnings figure does include all three amounts. The rest of this section assumes that this is so.

28. These are the figures which would normally go into the gross earnings and tax deducted boxes in the income from employment section of the tax return. But according to HMRC the PMCP is miscellaneous income which belongs in boxes 17 and 19. You, gentle reader, may well ask what difference it makes if two figures which should be in boxes 17 and 19 find their way into a different part of the return. After all HMRC will add the figures in the four boxes together to determine the gross taxable income and the tax already deducted.

29. The answer probably lies in the position over National Insurance Contributions. For those under 65 at the time of payment HMRC has determined that the individual is not liable to pay Class 1 NICs on the amount of PMCP whereas he may eventually be liable to pay Class 1 NICs on the ULS. If you have studied your pay slip carefully you will have seen that there appears to have been no deduction from the ULS for Class 1 NICs. The reason for this is probably that until the issue of whether the new pension scheme is to be retrospectively contracted out up to 31st March 2015 is determined it is not possible to say what the correct figure should be for employee’s Class 1 NIC contributions. Equally the level at which Class 1 NICs are charged has not been constant over the whole period. This may explain why the MoJ have decided to put the whole issue of NICs on the back burner until the contracting out issue is resolved. I can think of no other explanation for this omission.

30. There may therefore be some point in making sure that the gross earnings figure in the income from employment section does not include the PMCP so that any eventual liability for Class I contributions is correctly calculated.

31. The problem now is having taken the PCMP out of the income from employment section and inserted it into box 17 how to find a figure for the tax deducted to go into box 19. Certainly none of the documents issued by Liberata which I have seen show separately the actual amount of tax deducted from the PMCP. Had tax been deducted under Chapter 7 of the Income and Corporation Taxes Act 1988 there would have been an obligation on the part of the MoJ to provide a certificate in form R185 showing the amount of tax deducted but HMRC has now conceded that Chapter 7 does not apply.

32. There appear to be two practical solutions which both lead to the same result in terms of working out the total tax due and giving credit for tax already deducted by the employer. The simplest is to enter the total tax deducted from the P60 into the relevant box in the income from employment section and enter NIL in box 19. I suggest that in Box 21 something along these lines should be used ‘This is compensation under Regulation 8(10) PTWR 2000 from which tax has incorrectly been deducted by the employer. The amount deducted has not been separately specified but has been included in the total in the income from employment section so a NIL figure has been entered in Box 19.’ Another pragmatic solution is simply to work out the percentage of the total gross earnings represented by the PMCP and apply the same percentage to the total deduction figure to establish the amount to go into the two tax deducted boxes.

Example:

The P60 shows total gross earnings including ULS/PMCP of £80,000 of which the PMCP is £20,000. Total tax deducted is £32,000. The PCMP is 25% of the total gross so £8,000 of the tax deducted goes into box 19 and £24,000 into the box showing tax deducted from income from employment.

Completing the tax return – Category B claimants

33. In contrast to Category A the position is simple. Check the total gross earnings figure on the P60 to see whether the PMCP has been included. It should only include sitting/training fees and the ULS. If it includes the PMCP deduct the PMCP from the total and enter the adjusted figure for total gross earnings from employment. Enter the total tax deducted figure from the P60 in the box showing tax deducted from income from employment. Enter the PMCP figure in box 17 and NIL in box 19. Offer a brief explanation in box 21.

Completing the tax return – Category C claimants

34. The difficulty here is that the ULS/PMCP has been paid after your retirement and although tax will have been deducted from both lump sums you are no longer entitled to a P60 or a corrected P45. Payments made by the employer after the employee has left the employment are dealt with in HMRC guidance leaflet. As stated in the guidance you are entitled to written confirmation from the MoJ of the tax deducted. A specimen letter in lieu of the revised P45 is at Appendix B. You will need to complete the figures in the specimen letter showing the gross ULS and PMCP and one figure for the tax deducted from your pay slip and then e-mail the JPC team attaching the specimen letter as a word file. They should then provide you with a letter in lieu of a revised P45 on MoJ notepaper.

35. If you received your ULS/PMCP after your retirement but in the same tax year add together the gross earnings figure from the P45 and the gross ULS and enter the total into the gross earnings box in the income from employment section. Enter the gross PMCP into box 17 in the miscellaneous income section. Then follow one of other of the procedures described at para 32 above to enter the total tax deducted either all in the income from employment section or apportioned between the two sections.

36. If you received your ULS/PMCP in the next or later tax year simply add the gross ULS to your other taxable income from employment (if any) but NOT any MoJ payment on account of pension which belong in a different section of the tax return, and enter the total into the gross earnings box in the income from employment section. Enter the total tax deducted in the tax deducted box in the same section Enter the gross PMCP in box 19 and then follow one of other of the procedures described at para 32 above.

Completing the tax return – Category D claimants

37. You do not need a letter in lieu since tax has not been deducted from the PMCP. Simply enter the gross figure for the PMCP in box 17 and NIL in box 19. In box 21 enter ‘This is compensation paid gross under Regulation 8(10) PTWR 2000’. You will have tax to pay on the amount received.

Apportioning the ULS

38. If you have reached the point of seriously considering whether to elect for apportionment you will find step by step instructions, a draft letter you will need from the MoJ, and a worked example at Appendix C. There may be other ways of doing this but all I can say is that the principle of working out the amount of tax deducted to be applied to each separate year in which the payment should have been made has been accepted by the MoJ as valid in producing the letter in lieu of a P60 and by HMRC in working out the tax refund due to a widow over a three tax year period. HMRC records of each individual’s P60 do go back to the 2001/2 tax year but how far back their overall individual assessment records go is uncertain. It may be as little as six years.

39. The problem can be simply stated. In order to work out whether you are entitled to a refund you need information not only of your underpayments in each relevant tax year but also of your other taxable earnings in each tax year in order to determine whether you are at or over a particular tax threshold. That information may stretch over fourteen tax years and may simply be no longer available. If individual records are not available I have simply no idea how a solution can be arrived at other than by guesswork. Any suggestions for a solution will be gratefully received.

40. Surviving adult’s and children’s pension claims are covered by the terms of the pensions moratorium which is still running so if the PTFPJ died after 2 December 2012 or died before that date and his PRs made an in time claim for pension benefits, any surviving adult or child who makes a claim will be entitled in his or her own right to a pension under the new scheme. While the regulations are still under discussion the MoJ has instituted a system of interim payments on account.

41. You are entitled to a surviving adult’s pension from the date of death of the PTFPJ and you may have received your first interim payment on account of pension in the same tax year as the death of the judge. This will cover the amount due to the end of the tax year with tax deducted using the tax code of the deceased judge and indeed the payslip will show the payee as the deceased judge. Not surprisingly there will be no P60 at the end of the tax year. However since there was a delay in introducing the payment on account procedure many will have received an initial payment which covered more than one tax year (see para 46 below).

42. The same applies to any children’s pension. If you are lucky there will be two payslips one for the survivor’s payment on account and one for the children’s pension but the two figures may be lumped together into a single payslip and a single payment to the survivor. Again the name of the deceased judge will probably appear as the payee.

43. You will have received further interim payments along the same lines in April of each subsequent year up to and including April 2016 but again without any P60. All being well you should start receiving monthly payments from April 2017 which will be handled by Punter Southall, will have the name of the person entitled as the payee, and the figures will be worked out under PAYE using the actual tax code of the payee.

44. These payments on account are the taxable income of the person entitled either surviving adult or child. Each payment has to be included in the tax return of the individual as pension income, both the gross figure and the tax deducted being entered in the appropriate boxes in the income from pensions section. MoJ have followed HMRC advice in deducting tax under PAYE from these payments. Whether using the PAYE Code of the deceased PTFPJ is actually in accordance with the PAYE regulations is highly debateable but this is what has happened. But the result is that since the children’s pension is the taxable income of the child, for any children’s pension a very significant and possibly total tax refund will be due. Surviving adults whose total taxable income including the payment on account does not take them into the higher rate band will also be due a significant refund.

45. Since there is no P60 addressed to the person entitled it is not surprising that HMRC will not accept a payslip which shows a deceased individual as the payee as evidence that this is the taxable income of the surviving adult or child and as evidence of the amount of tax deducted. What is needed and again what the MoJ are obliged to provide for each beneficiary is a letter in lieu of a P60 confirming the amount of the gross payment and the tax deducted.

46. Where the surviving adult’s initial payment on account covers more than one tax year the initial payment has to be apportioned so that separate figures are shown for each tax year. This is not such a difficult exercise since the payments on account have remained constant and do not reflect any annual increases due on account of inflation. A worked example is at Appendix D1. At D2 is a specimen letter redacted from an actual letter in lieu covering an apportionment of the initial payment over three tax years which was successfully used by the recipient to claim a refund of the overpaid tax. The gross figure for payments on account and tax deducted should be inserted in the pension income section of the tax return for each year.

47. It is important to bear in mind that the annual payments in lieu to the surviving adults and children of those who have died in service do not include

(a) the service enhancement due under the death in service provisions of those who have died in service under age 65;

(b) the annual inflation uprating; and

(c) anything on account of the bereavement award.

The death in service lump sum is also less than the full sum due under the new Regulations because it does not include any allowance for the service enhancement due to those who die under age 65. In addition the figure of 3% deducted from the lump sum for surviving spouse/children’s pension contributions is greater that the figure of 1.8% which has now been announced. HMRC have advised the MoJ that they must deduct tax at 45% from the death in service lump sum and a bereavement award equal to the tax deducted will be paid which takes care of (c) above. This still leaves a significant recalculation exercise to be carried out once the Regulations have been approved by Parliament.

49. Hopefully the exercise of recalculating the correct figure for surviving adult’s and children’s pensions in this category will be completed before April 2017. At that stage there will be a back payment covering the amount of pension underpaid since the date of death, a further payment covering the increases due under the Pensions Increases Act 1971, then a further payment to cover the balance of the death in service lump sum and a bereavement award plus a further PMCP to compensate for the delay in payment. All these adjusting payments may be worth apportioning over the tax years in which they should have been paid.

50. The fact that all these further payments will come in the one tax year 2017/8 may well take the recipient into a higher tax bracket resulting in a higher tax charge. There seems no reason why the same logic should not apply to these payments. The underpayment of pension arising from the service enhancement and the 1971 Act increases can be apportioned on election over the tax years from death. Any PMCP attributable to these elements will be taxable in the year of payment and tax will be deducted at source. The bereavement award is tax free in the hands of the recipient and does not need to be declared. The underpayment of the death in service lump sum and any PMCP is income of the estate and taxable as such.

Pensions and PMCP payments

51. In contrast to PMCP payments derived from the ULS HMRC has advised the MoJ that PMCP payments derived from the delay in payment of the pension form part of the general body of pension benefits and are taxable under PAYE but not subject to NICs. Any PMCP will be taxable pension income of the beneficiary in the year of payment so should be included in the figure for gross pension in the tax return for that year.

A look into the future – Personal Pensions ultimately payable

52. From April 2017 matters should return to normality. On retirement a PTFPJ will be entitled to a pension for life and a lump sum of 2.25 x the pension. Since the new scheme is unregistered the lump sum will be taxable at 45% and a service award equal to the tax deducted will be payable making the lump sum effectively tax free. The pension will be payable monthly taxed under PAYE with annual inflation increases from April each year depending on the annual increase in the CPI to the previous 30th September. The scheme will be administered by Punter Southall on behalf of the MoJ. Each individual will receive an annual P60 issued by Punter Southall showing the gross pension and tax deducted for completion of the tax return. Completing all the necessary records in time for an April 2017 start will be a daunting task. We live in hope!

His Honour John Platt is a retired Circuit Judge who worked on the drafting of both the Judicial Pensions and Retirement Act 1993 and the various accompanying Regulations and is the author of a handbook Judicial Pensions - A Guide to the 1993 Act.

Appendix A - Tax Tables Income from Employment

Year

Personal Allowance £

Rates

Taxable income £

2000/1

4,385

10%

0-1,520

22%

1,521-29,400

40%

over 29,400

2001/2

4,535

10%

0-1,880

22%

1,881-29,400

40%

over 29,400

2002/3

4,615

10%

0-1,920

22%

1,921-29,900

40%

over 29,900

2003/4

4,615

10%

0-1,960

22%

1,961-30,500

40%

over 30,500

2004/5

4,745

10%

0-2,020

22%

2,021-31,400

40%

over 31,400

2005/6

4,895

10%

0-2,090

22%

2,091-32,400

40%

over 32,400

2006/7

5,035

10%

0-2,150

22%

2,151-33,300

40%

over 33,300

2007/8

5,225

10%

0-2,230

22%

2,231-34,600

40%

over 34,600

2008/9

6,035

20%

0-34,800

40%

0-37,400

2009/10

6,475

20%

over 34,800

40%

over 37,400

2010/11

6,475

20%

0-37,400

40%

37,401-150,000

50%

over 150,000

2011/12

7,475

20%

0-35,000

40%

35,001-150,000

50%

over 150,000

2012/13

8,105

20%

0-34,370

40%

34,371- 150,000

50%

over 150,000

2013/14

9,440

20%

0-32,010

40%

32,011-150,000

45%

over 150,000

2014/15

10,000

20%

0-31,865

40%

31,866-150,000

45%

over 150,000

2015/16

10,600

20%

0-31,785

40%

31,786-150,000

45%

over 150,000

2016/17

10,600

20%

0-32,000

40%

32,001-150,000

45%

over 150,000

Appendix B Draft letter in lieu of P45 (see para 34)

Dear [PTFPJ]

Our records confirm that after your retirement from part time judicial office you received a lump sum in respect of underpayment of fees due to you during your service from which the MoJ has deducted tax under PAYE. You also received compensation under Regulation 8(10) of the Part Time Workers (Prevention of less favourable treatment) Regulations 2000 for the delay in payment of money due to you. HMRC consider that this payment is taxable as miscellaneous income and at the time the payment was made to you the MoJ followed HMRC guidance in deducting tax from that payment under PAYE.

Since both these payments were made after your retirement neither were included in your P45. In accordance with HMRC guidance at https://www.gov.uk/employee-leaving this letter is to confirm the gross payments to you and the tax deducted as follows:

Tax year of payment(s)

[enter year or years in which payment was received. If payments fell into different tax years the figures must be separated into the tax year of payment]

Assume that the ULS was paid in the 2015/16 tax year before September 2015

Step 1. Determine the actual rate of tax applied to the ULS.

Example: ULS £14,000 PMCP £7,000 = £21,000. One figure in the pay slip for tax deducted under PAYE £7,000 so the overall rate is 33%.

Tax on ULS is reasonably assumed to be at the same rate as the PMCP so tax on the ULS is 33% x £14,000 = £4,620.

N.B. This under-deduction through PAYE will have to be balanced by a higher proportion of tax on other taxable income at the 40% rate in this tax year and may affect your decision after Step 4.

Step 2. Determine the total taxable earnings from employment/self-employment + ULS and PMCP for the year of payment. Check to see whether adding in the ULS to the total of earnings + PMCP takes the total over £100,000 From the tax year 2010/11 onward for each £2 of taxable income over £100,000 £1 of the personal allowance is lost.

Example: for tax year 2015/6 taxable earnings are sitting fees £25,000 + self-employment taxable profits £64,600 + ULS £14,000 + PMCP £7,000. Total taxable income = £110,600 so half of the personal allowance for this tax year is lost. Without the ULS table earnings are below the £100,000 threshold.

Step 3. Extract from the Excel spread sheet the underpayment for each tax year for both sitting fees and training day fees back to the start of fee paid service or 2000/01. Bear in mind that these will vary significantly depending on the number training days as opposed to sitting days in each year. Ignore earlier years.

Step 4. Check to see whether without adding the amount of the ULS in the tax years 2010/11 2011/2, and 2012/3 there is a total taxable income exceeding £150,000 in the tax years (the personal allowances will already have been lost). If so the underpayment for each year will now be taxable at 50%. Having suffered tax at only 33% tax of a further 17% will now be due which will have to be set against any savings from other adjustments e.g. by restoring the personal allowance. If adding the ULS takes the total past the £150,000 mark the excess will now be taxable at 50%

Step 5. Having decided to proceed you now need to determine the top rate of tax in each tax year of apportionment. So long as total taxable earnings plus the apportioned underpayment fall within the higher rate bracket each year apportionment will be tax neutral. If tax has been deducted at less than 40% there will be tax to pay but it will be at the same rate as in the tax year of payment. On the other hand if for some reason total taxable earnings plus the apportioned underpayment are below the starting point for higher rate in any tax year then a refund of 33% - 20% = 13% will be due for that year.

Step 6. You now need to apportion pro rata the amount of tax to each tax year.

Example: The gross ULS covers 5 tax years and amounts to £7,656 and tax deducted is stated on the pay slip as £2,833 which is a rate of 37%.

From the spreadsheet the gross ULS in each year breaks down as follows:

Year 1

£2783

tax @ 37% = £1,029.71

rounded to £1,030

Year 2

£996

tax @ 37% = £368.52

rounded to £369

Year 3

£874

tax @ 37% = £323.38

rounded to £323

Year 4

£1254

tax @ 37% = £463.98

rounded to £464

Year 5

£1749

tax @ 37% = £647.13

rounded to £647

TOTALS

£7,656

£2,833

Step 7 You now need a letter in lieu of a P50 from the MoJ confirming the tax deduction for each relevant tax year. Here is a suggested draft:

Dear [PTFPJ]

In [insert month and year of payment] the Ministry paid you a lump sum of £[insert amount] which represents the underpayment of sitting fees and training day fees due to you in accordance with the judgment of the Employment Tribunal in Miller v MoJ. This sum covers the period from April 2000/the start of your judicial service [delete as appropriate] to 31st December 2013. The MoJ has deducted tax under PAYE from this lump sum as if it were all income in the year of payment. In accordance with HMRC guidance you are entitled to elect for these underpayments to be taxed in the year in which they should have been paid. This letter in lieu of a revised P60 for each year is to confirm the gross payments to you and the tax deducted as follows:

The gross underpayment covers the period from [insert tax years up to 2013/4] and amounts to [e.g. insert your own figures] £7,656 and tax deducted under PAYE was £2,833 which is a rate of 37%.

Tax year

Gross

Tax deducted

Year 1

£2783

tax @ 37% = £1,029.71

rounded to £1,030

Year 2

£996

tax @ 37% = £368.52

rounded to £369

Year 3

£874

tax @ 37% = £323.38

rounded to £323

Year 4

£1254

tax @ 37% = £463.98

rounded to £464

Year 5

£1749

tax @ 37% = £647.13

rounded to £647

TOTALS

£7,656

£2,833

Yours etc.

Worked example

Judge A was a barrister and Recorder from 1 May 2008 to 31 March 2013 before retiring from judicial office to start salaried employment. His accounts have been prepared on a cash basis. He has made an in time money claim for sitting and training fees underpaid.

His total ULS received in September 2015 was £7,656 and tax deducted is stated on the pay slip as £2,832. The formula X% x £7,656 = £2, 832 gives you a tax deduction rate of 37%

(Remember that if he had been paid in august 2015 you would first have to apportion the one figure for tax on the pay slip between ULS and PMCP)

His total taxable earnings in each year with no other taxable income are:

*for much of 2010/11 he was engaged in a long trial for which he was not paid until the following tax year.

In the tax year of payment 2015/6 his total taxable income is salary £95,000 + ULS £7,656 + PMPC £1,344 = £104,000.

1. Without apportionment he will lose £2,000 of personal allowance (1/2 of £104,000 - £100,000) for the tax year 2015/6 so £2,000 of his income will be taxed at 40% = £800 extra tax.

2. But apportionment does put the apportioned slice for 2011/12 into the 50% bracket so tax is payable at 50% on £1254 instead of 40% so the extra tax payable is £125.

3. Apportionment does not affect the loss of personal allowances for the three tax years 2010/11 – 2012/13

4. Apportionment puts the 2010/11 slice into the basic rate band to be taxed at 20% instead of being taxed at 40% so the saving is 20% x £874 = £175.

5. Apportionment is tax neutral for 2008/9 and 2009/10 and 2012/3

Reconciliation

Tax saved 2015/6 =

£800

Tax saved for 2010/11 =

£175

Subtotal

£975

Deduct Extra tax for 2011/2 =

£125

Total saving

£850

Note: You may prefer the work this example using overall average rates of tax instead of marginal rates which is perfectly valid but does not affect the principles stated.

Appendix D1 – Worked example of a payment on account of widow’s pension.

The details of this example and the redacted letter at D2 are taken from a rea life example and reproduced here by kind permission of the individual concerned.

Recorder A served from April 2000 until his death in service in February 2013. Under the new scheme his widow is entitled to a pension for life equal to half the amount he would have received if he has retired on health grounds on the day of his death. In operating the payment on account scheme the MoJ are ignoring any entitlement to a service enhancement for those who die in service under age 65 and any entitlement to annual increases.

The first payment on account covers the period from the date of death to the end of the tax year in which it is paid. Thereafter one payment is made in April of each subsequent year up to April 2016 and monthly payments at the correct rate should start from April 2017.

Had he retired on health grounds at the date of death Recorder A would have been entitled to a pension of £28,075. His basic widow’s pension is half that sum = £14,038.

Her first payment on account covers the period from the date of death in February 2013 to 31 March 2016 and amounts to £29,421 gross with tax deducted under PAYE of £12,356 a deduction rate of 42%.

This payment on account needs to be apportioned over the tax years 2013/4, 2014/5 and 2015/6.

We know the gross figure for a full year is £14,038 so those are the correct amounts for 2014/5 and 2015/6 and the balance of £1345 is the figure for the part year February to 31 March 2013.

Even with the pension payments Widow A’s total taxable income in each of the three tax relevant tax years is below the higher rate threshold.

The actual apportionment over the three tax years is:

Tax year 2013/4

Gross £1,345

Tax deducted £566

Tax year 2014/5

Gross £14,038

Tax deducted £5,895

Tax year 2015/6

Gross £14,038

Tax deducted £5,895

TOTAL

Gross £29,420

Tax deducted £12,356

The tax due on £29,420 @ 20% is £5,884 so Widow A is due a tax refund of

I am writing to confirm that you are entitled to a widow’s pension following the death in service of your late husband Recorder H.

The Ministry of Justice are in the process of setting up the necessary pension scheme and this is expected to receive parliamentary approval to commence at the beginning of April 2016. This will cover all Mr H’s service as a Recorder from [commencement] to the date of his death on [insert date of death] from which your entitlement to a widow’s pension is derived. Some details of the new scheme which would affect the amounts of the death in service lump sum and your widow’s pension have not yet been finalised. In the meantime on 22nd May 2015 [inset date of payment] we have made you as his widow an ex gratia payment of £ 29,420.62 [insert actual amount] on account of our liability to you. This covers the period from the date of Mr H’s death to 31st March 2016 [insert actual tax year end in which payment was made]. In accordance with instructions from HMRC tax amounting to £12,355.05 has been deducted under PAYE to leave a net payment of £17,065.57. This letter is a certificate in lieu of Income tax Form P60 in accordance with HMRC instructions.

The breakdown of the tax deductions are as follows

Payment due to Mrs Jxxx Hxxxx on account of widow’s pension [insert actual tax years and figures]

Tax year 2013/4

Gross £1,346.04

Tax deducted £565.27

Tax year 2014/5

Gross £14,037.29

Tax deducted £5,894.89

Tax year 2015/6

Gross £14,037.29

Tax deducted £5,894.89

TOTAL

Gross £29,420.62

Tax Deducted £12,355.05

Yours faithfully

Graham Driver,

Judicial Pay Claims Team Leader

Judicial Policy, Pay and Pensions Directorate

Ministry of Justice

HH John Platt updates readers on the O’Brien/Miller pension and money claims fallout: all about tax